Brian Schwarzbach
Recommerce is a concept as old as trade itself. Everyone knows thrift stores or has bought a used product before — it’s not a new concept. Yet, today it’s become one of the hottest topics for consumers, brands and investors alike with a record ~$6 billion of venture capital funding pouring into recommerce companies in 2021 and the market projected to reach $250 billion+ by 2027. That’s 5x faster growth than the overall retail market.
Why the sudden recommerce resurgence?
It’s largely due to the changing cultural and societal value placed on sustainability. We waste a lot of … everything. Within apparel and textiles alone, billions of dollar’s worth of products are destroyed, discarded or warehoused each year because brands overproduced or the item didn’t sell. Industry analysts estimate that the global fashion industry contributes up to 10% of all greenhouse gas emissions each year. We can do better.
To understand how, look to Gen Z’s deep, generational emphasis toward ethical consumption. Gen Z has approximately $150 billion in spending power in the U.S., forecasted to comprise 40% of global consumers by the early 2020s. As Gen Z enters the workforce, they’re starting to flex their growing purchasing power with value-aligned, sustainability-oriented brands. This is made clear in a recent IBM poll where Gen Z indicated a willingness to pay a ~49% price premium for a basic white cotton T-shirt that was sustainably sourced and made.
Recommerce enters big brand boardrooms
Historically, brands had poor visibility into the secondhand market for their goods. Without being able to measure the impact on top and bottom line, recommerce was never at the forefront of boardroom discussions. However, the proliferation of successful third-party resale marketplaces like PoshMark, The RealReal and StockX have generated hundreds of millions in revenue and billion-plus valuations.
With more visibility into resale economics, coupled with shifting consumer sentiments toward sustainability, recommerce has now become a priority. One of the more progressive consumer companies of our time, Patagonia, has publicly stated they want ~10% of revenue to come from resale in the coming years, representing >$100 million (based on an estimated >$1 billion annual revenue).
This makes sense if you think about what recommerce offers brands: the ability to sell the same item multiple times with costs only related to the repurchase and logistics of the product. Given brands can control the price they pay for a good, it provides a compelling avenue to boost both top-line growth and bottom-line margin at little labor/production cost.
3 areas drawing VC investment
There are three core areas of recommerce getting VCs fired up: (1) managed marketplaces, (2) enabling tools and software and (3) applying recommerce to new consumer-facing industries. We’ll explore each below, along with some food for thought for founders building startups in this (re)emerging space.
Marketplaces
There are two primary forms of recommerce marketplaces: (1) branded (e.g., StockX) or (2) white label where a startup manages the process for a brand (e.g., Trove). Recommerce companies manage the majority (or entirety) of the resale experience — from product intake and authentication to merchandising and shipping. Platforms typically have a small SaaS fee, but most revenue is generated via a take rate on goods sold, ranging from 10%-25%.
The type of marketplace largely depends on vertical. For example, branded marketplaces are well positioned for consumer electronics given the high price and slowing rate of innovation in new phone models — creating less of a cultural zeitgeist around having the latest phone. It also comes with a high level of diligence and a complex logistics process for quality assurance, which is less appetizing for existing device makers who would rather invest in R&D and marketing for the next version. This is one reason we’re seeing consumer electronics recommerce marketplaces like U.S. and Singapore-based Reebelo (an investment made by our firm) and Back Market (valued at $5 billion+) take off.
It’s a different story in fashion. White-label recommerce marketplaces give brands control of secondhand supply, adding unique inventory that attracts new customers and purchases. There’s a strong psychological element as well with C2C marketplaces having long suffered from a need to commoditize trust (whereas established brands benefit from an implicit degree of consumer trust).
How to proceed:
Relentlessly focus on supply-side acquisition. Shoppers gravitate toward platforms with enough inventory to make browsing worthwhile. This is essential in getting repeat customers and altering heuristics toward brands’ recommerce site as the first stop for secondhand goods. One critical nuance: Play the long game when buying back goods — insulting customers with low-ball offers can negatively affect brand perception. Focus on getting customers in the door to build up supply. As reselling goods directly to the brand becomes the default, gradually lower buyback prices and increase resale margins over time.
Enabling tools an software
Emerging startups are tackling various parts of the recommerce value chain. The most promising areas include inventory sourcing, secondhand products discovery and product authentication.
The recommerce discovery process can be challenging given inventory is often spread thin across various sites. Also, many third-party platforms suffer from poorly tagged items and insufficient product information (e.g., brand, size, color, measurements). While brand-sponsored platforms should ameliorate some issues, it’s exciting to see companies like Disco and Beni who offer browser-based extensions that show shoppers all secondhand versions of a good available across sites and marketplaces. Other startups like Flyp offer consignment matching, pairing secondhand goods with power resellers and coordinating backend logistics.
Product authentication is another essential area, but it’s a bit of a stumbling block today. In-person verification is simultaneously fundamental to commoditizing trust and an existential threat to recommerce. Marketplaces like GOAT leverage authentication teams to verify goods, requiring sellers to first ship to GOAT before the buyer — adding logistical complexity, delivery time and cost to a purchase and eroding gross margins on sales. While marketplaces like Trove leverage brand partners’ physical stores as collection/authentication points, this minimizes costs but still adds unwanted complexity.
How to proceed:
Those that find ways to optimize product authentication will have a real competitive edge. We’ll likely see white-label marketplaces start connecting directly to brand’s OMS to pull and match product data to individual customers for verification — allowing products to be shipped to customers without needing in-person authentication. Leveraging computer vision to identify goods based on user images will also become more commonplace (though there’s still a lot of work to be done). For now, frictionless product authentication with effectively $0 marginal cost remains a white whale in the space.
Recommerce in new industries
Apparel, shoes and consumer electronics have dominated recommerce (and most of the funding), but we’re starting to see early signs of how it can be applied outside of these core verticals.
FloorFound is one great example, focusing on recommerce for furniture. What happens to returns from D2C brands like Casper or Burrow that offer a 100-day return policy? It’s a costly exercise for the brand in charge of collecting and (likely) destroying the item. As a better-for-the-brand (and the environment) alternative, FloorFound picks up the return item, inspects and resells on each brand’s FloorFound sponsored marketplace. This can become a powerful channel to make products more accessible on a cost basis and lower the risk of trying out a new brand (a critical factor in D2C).
Another case for recommerce in non-core sectors is Queen of Raw — an E2E supply chain tracking SaaS product for textiles and fabrics and a resale marketplace for brand’s deadstock fabrics and textiles (rather than warehouse or burn them). The beauty of an end-market focus like raw materials and textiles is its applicability to numerous industries — from recycling cans and bottles at a sports event to repurposing leftover leather from a car manufacturer.
How to proceed:
Let your imagination run wild! Everyone scoffed at the idea of brand-sponsored recommerce ~10 years ago, but now it’s a hot and growing market. If it can offer a smooth purchase experience, a clear communication of quality and a compelling price point — you may have something on your hands.
While recommerce is not a new concept, it’s only recently become a priority for brands. Thanks to emerging, innovative startups — in the form of marketplaces, enablement tools or new industry applications — it’s becoming the new norm as we shift to a more sustainability-oriented culture.
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